3 Deadly Sins First-Time Venture Capital Fund Managers Rarely Avoid

April 18th, 2018

Why do so many first-time venture capital fund managers, who have been a success in their past, cease to act like a success when raising their first fund? Undoubtedly, the fundraising journey is long, on average somewhere between 15 to 24 months for funds under $150 million from firing the gun until the final close. Nowhere is that harder for General Partners, who are new to the investment game and of limited interest to institutional money. Over the past 10 months, I have had first-hand experiences with 6 fund managers in US and Europe and talked to a multitude of placement agents, who have shared their experiences from over 120 such fundraises. Three deadly sins:

  1. General Partners underestimate the three pools of personal capital (cash, credit and investment) that they need to successfully arrive at their desired destination and thrive. They over invest in non-essentials (expensive office space, hiring employees), at the outset, and under invest in external expertise (fundraising, skills development) when they most need it, typically, in the tough grind that follows some immediate success  securing a cornerstone investor.
  2. General Partners underestimate the importance of maintaining a high level of self-worth. They allow a “poverty mindset” to quickly become their default position. They jump on the first offer of committed capital driven by a fear of failure, they beg for favours (introductions, expertise) on terms they’d never accept and they fail to act like a peer in front of investors (constantly “pitching” rather than investing appropriate time building a peer-level trusting relationship).
  3. General Partners underestimate the return on their time invested in accomplishing various activities along the “journey”. They spend excessive amounts of time “fine-tuning” their methodology at the expense of articulating the results and value the potential limited partner walks away with. They allow their intellectual curiosity and ego, to lead them into targeting investors, who are highly unlikely to commit, in their desired timeframe. Why? They consciously ignore who they are today (an ambitious first-time manager with an investment thesis yet to be proven, and zero successful exits) and they are overly pre-occupied with who they imagine themselves to be in future for ego reasons (the next Fred Wilson, Bill Gurley, Josh Kopelman).

The final thought: You might be a great investor but first, can you actually create and build a successful business (skills, behaviours, expertise)? I am not talking about a division of a large VC firm, a global bank, a management consulting firm or something you did on the side in university. I am talking about a boutique asset management business.  That is the first question your highest potential limited partners are trying to convince themselves about.

© James Berkeley 2018. All Rights Reserved.

Seed-Stage Investing: Time, Not Money

April 16th, 2018

If we don’t value our time, why should others? I have spent a good chunk of the past 3 years, inundated by entrepreneurs largely seeking help accessing global pools of predominantly private capital, at the seed stage. A timely blogpost yesterday by the insightful venture capitalist Fred Wilson reaffirmed a point that I have been reminding hundreds of individuals – “what is the return on your time invested, not your money”?

Here is what I see:

  • The Poverty Entrepreneur“: A majority of individuals, who have been a success in their “past” but they don’t act like a success today (forever claiming poverty, reluctant to hire external expertise on equitable terms, seeking endless “free” favours without regard to others’ time). Often relics of large management consultants or banking.
  • “The Abundant Entrepreneur”: the rare, hidden gem, more often than not a seasoned entrepreneur, who is respectful of others’ time, willing to pay equitably for high quality advice and has a high level of self-worth.
  • The Acquiescent Board Chair“: the well-known business person, who dabbles in young businesses either for affiliation needs with other impressive figures or the rare chance of a jackpot outcome. Very much a discretionary investment of their time, they are prone to ask apologetically for extended favours (contingent fee basis) from advisers, knowing in all probability it is a low return on everyone’s time invested but we are all in the “hope factory” together.
  • “The Scrambling Adviser”: A cohort of financial and corporate advisors (often solo and boutiques), who this IS their prime source of wealth. They are invariably failing to balance time invested, a sustainable business and a career successfully.  Few survive for long without exploring alternatives.
  • “The Luxury Adviser”: A cohort of financial and corporate advisors, whose principle source of wealth (founding business, a banking career etc.) affords them the luxury of dabbling as advisors and investors in the seed area without regard to the actual return on their time invested.
  • “The Blunt Investor”: A cohort of professional investors, whose prime source of wealth arises from seed stage investing, time is precious and they are wont to give very blunt responses to requests for their time or flatly ignore them.
  • The Luxury Investor“: A cohort of angel and high net worth individuals, whose prior success affords them the luxury of significant discretionary time. Driven by their intellectual curiosity and wealth (time and resources), they are more relaxed about time given to seed investments (an interesting alternative to “pro bono” advice and charitable giving).
  • The Tax Investor“: A cohort of angel and high net worth individuals, whose tax structuring particularly in the UK attracts them to seed investing. They are cogniscent of time in so much as it enables them to understand the net financial consequences of seed investments.

You undoubtedly recognise some of these individuals if you have got this far, perhaps yourself. I am not here to tell you what you should do but I am here to urge you to apply critical thinking, and to ask, “is this a great way to surrender my scarce time, not just my money?”

© James Berkeley 2018. All Rights Reserved.

 

Facebook’s Mousetrap

April 16th, 2018

Over a crackled, and clearly excruciatingly cheap phone line, “Hello, I am Anand, I am not trying to sell anything but one of your Facebook friends has suggested that I call you….” Just ridiculous. If this was an isolated incident, you’d ignore it but when it is the 17th call in two weeks, you ask yourself to what extent is one of the world’s 5 largest companies taking the defense of its’ customers data seriously. Judging by this weekend’s Sunday newspapers, full page advertorials, the company is keen to be seen on the right side of the data protection and ownership wave sweeping through Europe. Great but wouldn’t a more meaningful response rather symbolic gestures with public demonstrations of visible scammers snared in their mousetrap, reassure users that they are really serious and on their side?

©  James Berkeley 2018. All Rights Reserved.

We Have All The Time In The World

February 22nd, 2018

 

Louis Armstrong made a wonderful record and a great refrain, do you have “time enough for life to unfold?” All of us do in reality unless we are suffering a severe illness or injury, yet a great many smart people structure it disastrously or use it woefully. Just today, the Harvard-educated US hospitality executive, whose calendar works in 15 minute increments, lo and behold by 7:30am shows up 25 minutes late, full of apologies and we achieve close to zero. The European fintech entrepreneur, who insists on taking “urgent” calls when we meet, describes himself “crazy busy” and turns a focused 45 minute capital raising conversation into a rambling 90 minute dialogue of half finished ideas and no clear, next steps. Even my public-funded doctor’s surgery doesn’t schedule back-to-back appointments and the doctors have regularly scheduled times for returning calls. There is a reason why the “cares of the world are rarely behind us”, YOU and your lousy system!

© James Berkeley 2018. All Rights Reserved.

Faux Collaboration

February 20th, 2018

Most conceptual conversations around collaboration, internal or external, are a huge waste of time, yet daily I see  clients, prospects and business partners spending endless hours doing just that. Here is the key questions to ask yourself: Is there real business with real money at stake? Is it mutually-attractive in our immediate future? Is there the requisite commitment on both sides to convert it into cash quickly? If you don’t have a definitive “Yes” to all three questions, stop right now.

I have created over 75 collaborations in support of my firms’ business growth, and hundreds for large and small clients in 15 sectors and in 91 countries in my near 30 year career. Yet only handful really endure for any significant length of time or develop beyond a very specific need.

© James Berkeley 2018. All Rights Reserved.

Idiotic Management Award: Equiniti

February 20th, 2018

This month’s Idiotic Management Award goes to Mark Taylor, Chief Customer Officer and his firm, Equiniti. A designated share dealing and management company for many of Europe’s leading multinationals, where the simple act of trying to sell share certificates online is a horrible customer experience. Disruptors bang on the doors of Investor Relations in companies like Royal Dutch Shell, GSK, InterContinental Hotels, Sky plc, they need you!

To enter your date of birth, requires 10 seconds clicking on a clock counter, cumbersome and duplicate data entry, regular error messages when you have entered the correct details directing you to call one of their customer representatives, where you are met with “your held in a queue, we are busy” and a 10 plus minute wait if you are lucky. You are then hit with a £45 minimum charge and asked to mail in certificates on the understanding the trade will happen the next day and settlement received two to three working days later. This is 2018, not 1988.

Customers expect both speed (responsiveness) and quality (experience). Are you “shopping” the simplest of customer experiences and making it near seamless? When I call your main telephone number, am I able to quickly communicate with the most relevant individual with minimal effort? When I scour your website do I find a very clear point of contact, who I can contact immediately and if they are not available my message is answered within 90 minutes or am I asked to jump through hoops? Does it reflect a professional and contemporary service image or like Equiniti something out of the “telex” age?

© James Berkeley 2018. All Rights Reserved.

Kung Hey Fat Choi Mrs May!

February 16th, 2018

 

Perhaps no international leader would be more grateful for some traditional “Lucky Money” at this Chinese New Year than Britain’s Prime Minister, Theresa May. Her recent visit to China generated positive headlines (£9 billion of deals, 2500 UK jobs) but the litmus test is to what extent are UK and Chinese private sector companies, particularly those under £500 million of enterprise value able to make significant strides in each other’s market. These companies are the engine of employment growth.

Ralph Jennings, a senior reporter at Forbes interviewed me on the eve of Mrs May’s recent visit

https://www.forbes.com/sites/ralphjennings/2018/01/31/chinas-economic-expansion-hits-a-roadblock-at-the-far-end-of-europe

I remain highly skeptical about “symbolic success”, recalling a visit to the much heralded MG Rover plant in 2012, at the behest of a senior executive at the new Chinese owners, SAIC. A couple of months earlier, political leaders from the UK and China stood on the very same steps in Longbridge heralding this partnership as a  symbol of new era in bi-lateral trade. Walk inside, and talk to British and Chinese workers as I did, and there were telltale signs of mistrust, viper tongues, and unflattering comparisons with the Japanese car makers welcome in the North East of Britain. One Chinese manager, Annie Qi, on an earlier planned visit, called me 5 minutes before the scheduled meeting time to cancel the entire meeting because she had to drop her kids off at school! “Sorry, go back to London” was the curt one-line response. Car assembly ceased, design continues but the heritage of the MG Rover brand has not been exploited some 10 years later by SAIC. Sustaining these relationships is highly complex and ambiguous, it is a very long game for those with deep pockets and deep pools of patience.

© James Berkeley 2018. All Rights Reserved.

London: ICE Totally Gaming 2018 Re-cap

February 15th, 2018

ICE Totally Gaming likes to style itself asthe only B2B gaming event that truly brings together the international online and offline gaming sectors”, here is some future thinking about the sector fresh from last week’s annual event.

  • The biggest event headline was a pointed article in The Guardian questioning the industry’s evolution in a #MeToo world (overt sexualisation of products). For a sector, whose branding has heavily relied on testosterone-fueled excitement, it is an awkward question with few, if any, obvious answers. When for example, over 50% of Las Vegas revenues arise from non-gaming tourism and events, “what happens in Vegas may no longer stay in Vegas” might need to be the new logo, at least in the corporate events market.
  • Caesar’s Entertainment, arguably the must public US corporate casualty in the 2007/8 financial crisis, is back on the front foot. After 10 difficult years, the Mark Frissora-led business has a spring in its’ step. The ex Hertz and GE executive is exuding confidence, exploring multiple partnerships and projects. Often in ways the Caesar’s brand has never successfully been positioned in adjacent markets internationally.
  • Italy remains a gaming paradox. Wrapped in regulation and taxation issues like many US markets, operators and investors can see ripe apples hanging on the trees but their attempts to grab them are constantly frustrated.
  • US sports betting and the US Supreme Court judgement. Everyone is gearing up to get in on the act, not least the US tribes, who with smaller, more entrepreneurial business models may be ideally-placed to bring the most innovative ideas.
  • UK sports betting is approaching a huge fork in the road, ahead of the Government’s ruling on fixed odds betting terminals or “pokies” to my Australian friends.  Stick with limits of four machines per betting shop and a £100 stake per play, a ferocious political and media wind (Daily Mail front page hardship stories. Restrict stakes to £2 per play (prevalence of social welfare issues), see sports betting “majors” (Ladbrokes Coral, William Hill) and others dependent on their largesse (UK horse racing, UK government tax take) face a seismic change to their business models (30% reduction in gross gaming revenues, closures of 30-40% of their betting shops, 1000 of redundancies). Should we care? That depends on your view as to who is responsible for an individual’s actions. My personal opinion is that I am firmly against any form of gambling where there is not a fair and equitable chance of the punter winning long-term. If you applied my principle, we’d be closing down swathes of automated gaming machines, online card/roulette games and pools betting in casinos, bookies and so forth, where the “house” has a huge advantage (size of take out). We’d have more revenues directed to “equitable gaming and betting”.
  • 2018 is arguably the most profound and volatile year for gaming and betting’s adaption to changing societal mores, regulation and tax.  Yet for the smartest investors and regulators, this might well be the greatest year of opportunity (upturn in incumbents business models and branding, new markets, new value propositions, new ways to attract and retain customers, new ways to adapt to regulation and tax risks).

© James Berkeley 2018. All Rights Reserved.

Delusional Co-Investors

February 15th, 2018

 

 

“Who are you today?” I meet a great many $30mio-net worth plus co-investors in growth businesses, who arrive as free spirits but quickly find themselves as “prisoners” in their own mind. Convincing themselves that they are a smart investor in ultimately a profitable growth business, management team and market when recent performance and future indicators suggest the exact opposite. To a certain extent, you can understand entrepreneurs travelling through what I term a “delusional growth zone” (burning ambition and unmatched results) but you’d hope private investors and those advising them would avoid enduring extensive self-imprisonment.  In my experience, “letting go” is a lot harder and painful for wealthy investors than most people ever imagine or discuss. Here is the rub: you cannot improve your situation unless you are willing to be intellectually-honest with yourself first (rational assessment), to not “fear” the consequences of moving on (ego) and to embrace rebounding from failure (accomplishment). This really isn’t about them, it is about you.

© James Berkeley 2018. All Rights Reserved.

Idiotic Management Award: UK Passport Office

February 6th, 2018

Here in the UK when renewing a new passport, the UK’s Passport Office insist on the application form being filled out and countersigned  in “black biro”, no blue black, and woe betide you if your handwriting should stray outside the tiny boxes provided. Rejection! At a cost of £287 for a family of four,  the experience of applying for a passport exudes extreme bureaucracy and frustration. Nearly three years into the fixed term tenure of Mark Thomson, formerly a Managing Director of the international arm of the UK’s Royal Mail, he has seemingly spent more time driving the burden onto the customer to infinitesimal detail and expense while the experience hasn’t improved one iota.

To what extent is the emphasis and energy on improvements in your own organisation over the next 12 months on “internal benefits” (reducing overhead) versus “external benefits” (customer)? Is that a productive and common sense use of scarce time and resources? If like Mark Thomson, you think your actions make sense, you rightly need to be removed from the job.

© James Berkeley 2018. All Rights Reserved.